According to a new survey by CBRE, Asian intentions to invest in commercial property assets will remain strong this year with Tokyo being the most active market in 2015. Yet activity will moderated from last year.
CBRE's Asia Pacific Investor Intentions Survey 2015, which looks at the outlook and views of investors in the Asia Pacific real estate sector, also revealed risk appetite for prime core assets has risen. Major markets like Japan, China and Australia, remain the top investment destinations with other mature markets moving up the rankings, and outbound foreign property investment intention to stays strong in 2015.
Key Asia property investment findings for 2015 include:
Most active target markets are Tokyo, Shanghai and Sydney
Top countries are China, Japan and Australia
Hottest investment sectors are office assets, logistics facilities and hotels
Investment Interest Remains High but Moderates from Last Year
Findings reveal that investor sentiment will remain positive in 2015 with the majority of investors (54%) planning to make more real estate purchases this year. This result suggests that investors retain a strong belief in long-term economic growth in the region and will continue to invest capital in Asia Pacific.
The intention to invest moderated from last year--in CBRE's 2014 survey, 64% indicated the desire to make more real estate purchases--as investors continue to be concerned on high pricing; availability of investible stock and uncertainty over the economic outlook. In particular, respondents identified high level of asset pricing as the biggest obstacle to acquisitions (31%) and the greatest threat to the region (21%) for the second consecutive year. This concern is not without reason as the pace of price appreciation has slowed to 6% in 2014, compared to an average of 9% recorded over the past four years according to CBRE's All-sector Capital Value Index.
"Our view is that investment liquidity will remain abundant in the regional real estate market but that deal flow will be limited by investment opportunities and pricing. We thus expect only a mild increase in investment turnover in 2015, by around 3-5% year-on-year," said Ada Choi, Senior Director, CBRE Research Asia.
Strong Demand for Prime Core Assets
The slightly reduced investment confidence also comes alongside lower risk tolerance. Survey respondents demonstrated a significantly stronger appetite for prime core assets with 43% preferring this asset type compared to 29% in 2014.
"The strong interest in prime core assets is being supported by factors such as the desire for wealth preservation and reduced expectations of sudden interest rate hikes. Led by institutional investors and REITs looking for stable income portfolios with longer holding periods, investors seeking prime core assets see Asia Pacific as a key component of the diversification of their global portfolio and are increasing their allocations to the region. We're also expecting to see further yield compression in core prime assets as a result of the level of investor preference for this type of asset," said Richard Kirke, Managing Director, Capital Markets, CBRE Asia Pacific.
Recent rate cuts in major economies such as Australia, China, India and South Korea, as well as the quantitative easing program in Japan, will ensure the low interest rate environment continues in 2015. The percentage of respondents in the Asia Pacific Investor Intentions Survey seeing this as a threat fell from 17% in 2014 to 9% this year. The US Federal Reserve is also expected to keep interest rates at current low levels for a considerable period of time. As a result, investors will continue to have ample opportunities to secure low-cost financing in 2015, which in turn will help support investment volumes and prices.
China, Japan and Australia Remain Top Investment Destinations Major markets, China, Japan and Australia, remain the top investment destinations in the region, with other mature markets such as Hong Kong, Singapore, New Zealand and South Korea moving up the ranking. This result aligns with the findings of the lower risk appetite among investors. Emerging markets such as India and Indonesia saw weaker interest as investors remain concerned over the pace of political and economic reform as well as the oversupply situation.
The office sector retained its status as the most preferred sector for investment followed by the industrial and logistics sector, supported by the structural upgrading to modern logistics facilities. Driven by the growth of the middle class, and rising incomes fuelling a boom in regional travel and tourism, the hotel and resorts sector recorded a surprising surge in interest to 12% from just 1% in 2014. Investor interest in the residential sector faded significantly from 21% last year to 11% this year, with China and Australia remaining the preferred markets for this sector.
Investors are also looking to extend their interest in alternative sectors. This year's survey finds that 56% of respondents have already invested in alternative assets with a further 62% saying they are actively pursuing investment. Real estate debt was the most popular alternative method of investment while healthcare and retirement living are seeing investment interest far exceeding existing investment, implying significant demand growth on investing in these sectors.
Sustained Demand for Investment Outside Asia Pacific
After a recorded year of Asian outbound investment in 2014--reaching US$40 billion, as highlighted in CBRE's recently released research, Asian Outbound Investment: Acceleration and Evolution--Asian investors still plan to deploy capital outside the region. 32% of respondents expressed an interest in looking for opportunities outside APAC. South Koreans expect to be the most active outbound investors (69%), followed by the Chinese and Singaporeans. South Korean investors have shifted to invest significantly via indirect funds and club deals, a trend which is also observed amongst many Japanese investors.
Whilst outbound investment intentions remain strong, the pace of outbound investment could moderate this year. Only 12% said they plan to increase the amount they invest outside the region this year, compared to the 29% intending to do so last year. North America and Western Europe continue to be the preferred regions for Asian investors.
"The strong economic recovery in the US is prompting some investors to shift their focus from Western Europe to North America. Nevertheless, EMEA continues to attract a high volume of Asian capitals. We are also seeing regional investors increasingly diversifying their investments when investing globally. They are less confined to acquisitions in traditional gateway cities in popular developed markets," said Ms. Choi.
The CBRE Asia Pacific Investor Intentions Survey 2015 is based on over 300 responses--80% of respondents are investors in Asia Pacific--and was carried out online in January 2015. It covers a wide range of real estate investors, including fund or asset managers, private property companies, institutional investors, banks and REITs.